In Part 1 I said that a business partnership is like a marriage. It joins together two or more people in a close relationship in which they have to co-operate and work with each other.

In any relationship, things may go wrong. There may be a breakdown in a personal relationship between the partners. There may be a major disagreement on a business issue, which may be about the direction a business should go, or about finance or about responsibilities for different aspects. Sometimes these disagreements cannot be resolved. If everyone is arguing, sometimes a relationship cannot be fixed.

Business pre-nups

Now in a marriage, I think pre-nuptial agreements are mostly not a good idea because they indicate a lack of trust between the prospective spouses. I can see why some wealthy parties might want one of course, but my feeling is if you don’t trust someone, don’t say you will commit the rest of your life to them, or anticipate that you will split up.

However, in business relationships I think a pre-nup is essential, because it lays down the ground rules for the the future. A business pre-nup takes the form of a partnership agreement or for a limited company, a shareholders’ agreement. Generally it will lay down who puts what in in terms of cash and who gets what out in drawings etc.. It may go into quite a lot of detail about how the profits are shared out between the participants.

Partnership and shareholders agreements should also say what will happen to the finances of the business is sold, broken up or if a participant wants to leave. The agreements will provide certainty when the participants are moving on for whatever reason, and will avoid involving lawyers and engaging in expensive court cases.

A partnership agreement can help a business relationship to be plain sailing (Photo credit: Jon Stow)

Make it legal

A partnership or shareholders’ agreement will be need to be drawn up by a professional, which means a lawyer, and like everything else worth having will have to be paid for. All too often I have seen agreements by amateurs proving useless when partners have fallen out. Even worse, unscrupulous partners have exploited the naivety of their more trusting former colleagues to extract far more money than they deserved. I could be more vulgar about this because it is sickening to see.

Breath more easily

Any business collaboration can be very satisfying and last a lifetime. A proper legal agreement between the parties should be seen as an insurance and not as an indication of lack of trust.

Who wants to be a hostage to fortune in business or in life? We cannot plan for everything, but there are some disasters we really can avoid with a little foresight?